We are always instructing our traders on the setups that present the greatest risk/reward. If they are involved in these setups trading will be easy. If not they will struggle. I pointed out one such trade to our newest group of trainees.
I was trading AAPL on the Open as it was very In Play due to Steve Jobs taking a leave of absence until June. Most of the price action since yesterday’s after hours pointed to a move higher so I was trading it with a long bias. But at 82 there was an identifiable seller so I got short. When it pulled back to 81.70 the bid was hit for a significant amount of volume but the bid never dropped. I covered my short and went long again. AAPL moved up through 82 fairly easily.
I made a mental note of the 81.70 buyer and was prepared to add to my position if it pulled back to this level again. I placed my bid at 81.72 to give myself a better chance of getting stock on a pullback. If the 81.70 bid dropped my plan was to hit out of my position with no more than a 7 cent loss. The previous up move from this level has been over 50 cents so I liked the risk/reward.
As you can see from the chart below my bid got hit at 81.72 and the stock immediately moved higher. I get this question a lot from younger people on the desk “how did you know to bid at that price?” Sometimes I just offer a smile in return. I suppose if I actually were to respond each time to that question I would say “watch a stock trade, if it is strong, attempt to buy where you have identified a buyer or a support area, if it is weak, attempt to sell where you have identified a seller or at a resistance area.” In fact, now that I have thought about it I will record that message and play it each time I am asked this question in the future.
I don’t mean to be facetious about this point. But the reality is that SMB has spent many years and tens of thousands of hours dedicated to honing our training program. We are trying to build well rounded traders that can make money under any market conditions. One of the things that we hammer home is that you should always bid/offer in the stocks you are trading. If you are paying close attention you should understand where you would like to buy/sell the stock before it ever reaches that point.
Sometimes new traders lack the confidence to bid/offer because they think the person executing against their order knows more than them. But what I tell our traders is that after having traded for 12 years that actually those who execute against their orders generally know far less and haven’t been paying close attention to how the stock is trading. Have confidence in yourself and develop this skill if you want to trade professionally for a long period of time.
TRADE FOR TOMORROW-If AAPL gaps above 84 dollars in the premarket buy on a pullback to 83.6. Stop at 83.45. Initial target 85.
